Although from time immemorial stock, commodity and currency traders have sought an "edge," insider trading, which has become more systematized than ever before, has been in the headlines a lot recently with the sensational convictions of Raj Rajaratnam of Galleon hedge fund and several of his informants most notably Rajat Gupta, a Goldman Sachs director and former C.E.O. of McKinsey & Company. More recently the investigations of Steve Cohen's SAC Capital hedge fund have grabbed the headlines, with everyone waiting with bated breath to see whether Cohen himself will be indicted. frequency trading clients.

The widespread insider information sources and practices take several different forms including industry "expert network" firms that provide information from a variety of sources to hedge fund analysts and traders. These firms are highly compensated for this information. Advance notice of brokerage firms' analysts' recommendations provided to select clients is another form of insider information. And financial pages reported this week on current investigations of another type of insider information--the sale of early financial data such as the University of Michigan's survey data by Thompson Reuters subscribers five minutes earlier than it goes to the public and five minutes, two seconds, early to a select group of high paying, high frequency trading clients.

Steve Cohen's SAC capital hedge fund in 1968 even advertised it's information gathering system's "edge," and the fund's organization was structured maximize the use of information from a variety of sources and some believe to insulate Steve Cohen from knowledge of any illicit practices. SAC acquired the reputation of being Wall Street's greatest information gathering machine. Prosecutors hope that a former SAC manager, Matthew Martoma who was indicted recently will lead directly to Steve Cohen himself. Martoma has been accused of paying Dr. Sydney Gilman, neurology profssor at University of Michigan Medical School for advance information on trials of an alzheimer's drug on which SAC with Cohen's approval made huge profitable trades. Thusfar, Martoma has refused to help prosecutors nail Cohen. SAC paid $615.7 million in an unsuccessful attempt to make the case go away. Meanwhile the SEC continues to squeeze Matthew Martoma to get him to cooperate in it's effort to indict multi-billionaire Steve Cohen.

7-26-13NYTimes--"SAC Capital Arraigned on a Raft of Criminal Charges"

SAC Arraigned on a Raft of Criminal ChargesIn a brief proceeding in Federal District Court in Lower Manhattan, the firm was arraigned on a raft of criminal insider trading charges, making it the first large company to face an indictment in more than a decade. ["Corporations are people."]

7-25-13NYTimes--SAC Indicted for Fraud!!! And Called a "Magnet for Cheating"

There is no accurate measure of hedge fund performance because of the absence of reporting requirements and because the performance of the unsuccessful ones that are dissolved and disappear are not included in the...

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Comments 16 comments

Stock picking is for suckers! Ordinary investors are the last to get the good news or the bad news. Insider trading has been systematized by the big boys.

Ericdierker 3 years ago from Spring Valley, CA. U.S.A.

This is a good article Ralph. I do some work in debt restructuring and developing countries. It is a tough road to hoe to try and stay compliant when simply discussing business.

Most companies are not huge and the cost of staying compliant is brutally expensive. Because the only true way to stay compliant is by SEC filings on a frequent basis like 8ks and constant press releases. That is the only way you can be sure that even insider knowledge is known by all. And that gets very tricky when negotiations are underway.

Thanks. That's a good one. I wonder who dreams up these schemes at Goldman and JPMorganChase? Actually there was a picture of the woman at JPMorgan who specializes in derivative schemes. As I recall she came from England.

bplusbob 3 years ago

Bright, ambitious kids, eager to please and make their way in the world and exploited by the corporate gangsters who own most of of it. Here's a young trader who didn't get the memo to stay quiet about the thievery . . .

Federal authorities, under fire for treating Wall Street with kid gloves, have delivered a crippling blow to one of its most successful firms, SAC Capital Advisors, whose outsize trading profits have drawn government scrutiny for more than a decade.

Ralph Deeds 3 years ago Author

7-26-13NYTimes--"SAC Capital Arraigned on a Raft of Criminal Charges"

SAC Arraigned on a Raft of Criminal Charges

In a brief proceeding in Federal District Court in Lower Manhattan, the firm was arraigned on a raft of criminal insider trading charges, making it the first large company to face an indictment in more than a decade. ["Corporations are people."]

Express10 3 years ago from East Coast

Ah, the lovely Raj Rajaratnam. He deserved the spotlight on that t.v. American Greed and the prison cell too! Here is a real pull yourself up by the bootstraps story gone totally wrong and criminal. SAD! He didn't even need the money, it truly was greed and a game to him that he chose to take out of control. Let's see what happens to Cohen. As a figure skater, I've got to admit, I LOVE his home with the outdoor rink :) Do you think insider trading ever will be legal seeing how widespread it is and how hard it is to stop it?